Coca-Cola close to buying its largest bottler

By IBT Staff Reporter On 02/25/10 AT 7:40 AM

Coca-Cola Co is in talks to buy most of its largest bottler for roughly $15 billion, including debt, marking a shift in its strategy to keep its bottling operations separate, a person familiar with the situation said on Wednesday.

If the deal goes through, Coke would buy Coca-Cola Enterprises Inc's North American operations. Meanwhile, the rest of the bottling company would remain independent and would acquire some Coca-Cola assets in Scandinavia and Germany, the source said.

The North American operations represent the bulk of Coca-Cola Enterprises's business, accounting for 70 percent of its net operating revenue in 2009, according to a report by The Wall Street Journal.

The deal could be announced as early as this week since the boards of both companies were evaluating the transaction on Wednesday night, the source said. Talks could still break down and a deal could fail to materialize, said the source. The source, who was not authorized to speak with the media, declined to be named.

Coca-Cola and Coca-Cola Enterprises could not be reached immediately for comment.

Such a deal would represent an about-face for Coca-Cola, which pioneered the model of separating the bottlers from the concentrate company decades ago. It also would follow a similar deal by rival PepsiCo Inc, which is aiming to close on the $7.8 billion acquisition of its two largest bottlers this week.

Since PepsiCo first launched its bid for its bottlers in April, with the aim of streamlining its decision-making, cutting costs and reducing tension between it and the bottlers, analysts and investors have questioned whether Coke would have to follow suit.

Tom Pirko, founding partner of beverage industry consultants Bevmark LLC, who has advised Coca-Cola in the past, described the possible move by Coke as something the company has to do because of the evolving nature of the U.S. soft drink market and the move by PepsiCo, rather than something it wants to do.

This is a tit-for-tat business. They're responding, Pirko said. This is something that they've been publicly committed to not doing. It's something they're getting pulled into.

Coke Chief Executive Muhtar Kent has repeatedly expressed his commitment to the current franchise system, where it sells beverage concentrate to a network of independent bottlers that mix the drink, bottle it, and distribute it.

Still, Pirko said the North American soft drink business now has so many small, niche beverages with different distribution needs that it is difficult for the concentrate company to maintain control as it did when the industry was more focused on a few giant carbonated soft drink brands.

The one thing you gain by reeling them in is that you are in command ... if there's any reason for doing this, it's the unspooling of the business. It's all these new products that are driving them crazy, Pirko said.

Coke is both the largest supplier and the largest shareholder of Coca-Cola Enterprises with a roughly 35 percent stake.

(Reporting by Jessica Hall in Philadelphia, Clare Baldwin and Martinne Geller in New York, editing by Leslie Gevirtz and Carol Bishopric)